The UAE cement industry needs more investments

DUBAI — Unprecedented construction boom and government's investment worth over $60 billion in various infrastructure projects have propelled the UAE cement manufacturers to go all-out to expand production facilities to cash in on the demand prevailing in the country.

By Muzaffar Rizvi

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Published: Thu 26 May 2005, 10:48 AM

Last updated: Thu 2 Apr 2015, 5:11 PM

About half a dozen cement manufacturers are currently engaged in either expanding or upgrading their plants to add approximately nine million metric tons per annum with an investment of over $1 billion by the end of the year 2006, Khaleej Times learnt yesterday.

The factories implementing expansion programmes include Gulf Cement Company, Ras Al Khaimah Cement Company, Union Cement Company, Al Ain Cement Company and Fujairah Cement Company. The latter two cement manufacturers will add over 2.5 million metric tons per annum (mtpa) while the former three will each add on average little over two million mtpa by the end of next year.

The demand for cement is high across the UAE following the launch of mega projects worth more than $60 billion over a period of five years, giving room to the cement manufacturers to expand or upgrade their existing production facilities. "A number of mega projects in infrastructure, tourism and real estate are currently in various stages — from designing, tendering to construction — and the same trend is likely to continue in the coming years and it will create regular demand for cement in the country," the industry experts said.

Demand and consumption: The UAE witnessed double-digit growth in cement demand in recent years (up to 15 per cent) and resorted to importing the commodity to meet the local requirements despite the fact that it is the fourth largest producer of cement in the Middle East region after Saudi Arabia, Iran and Egypt which account more than 70 per cent of the total production.

Cement consumption in the Gulf region is highest in the world, surpassing China, European Union and the United States while its share in world's production is very nominal (approximately only five per cent). UAE, Saudi Arabia, Qatar, Oman all recorded more than 10 per cent growth in cement demand during 2003 as against below five per cent on average by rest of the world, indicating the strength of the construction boom in the region.

Price impact: The surging demand had significant impact on cement prices, which marked notable increase over a period of time as its 50-kg bag's price shot up three-fold from Dh8 to 25 some time back. It left no other option for the government but to intervene and fix the current prices to stabilise the market as well as to ensure that the construction boom will continue uninterrupted.

Industry people said there is still a wide gap between demand and supply of cement, leaving no other option but to bank on imports from other countries. However, there is confidence that the situation will improve next year when the new facilities start production and bridge the gap considerably.

Cement production in Middle East nations surged to over 110 million tons in 2003 while its consumption stood around 105 million tons.

Expansion is across GCC: Other GCC states are also pursuing vigorous expansion programmes in the cement sector by pouring multi-billion dollar investments in the industry.

"About nine or ten cement companies in Saudi Arabia will expand their facilities by another 14 million metric tons per annum during next couple of years while Oman, Yemen and Qatar are also following in its footstep," explained industry experts and estimated that approximately over $3 billion would be invested in the cement sector across the region during next couple of years.

"The region's cement production facilities are likely to cross 50 million metric tons per annum by the end of 2006 for the first time," they pointed out and said the production capacities may hit 60 million metric tons per annum in 2007.

GCC cement sector may attract MNCs

The industry experts believe that the cement sector in Middle East has great potential to attract foreign investment as well as multinationals and key international players in days to come.

Multinationals may invest in GCC cement sector, which would integrate small companies or trigger merger activities among the existing cement manufacturers in order to boost operating efficiency of production facilities, cuts production costs and reduce competition in the market.

According to industry circles, opening up of regional economies to foreign investment will lure investors to the region's cement industry, which was established even before the oil boom but did not gain from the economies of scale due to small production facilities, poor efficiency and higher costs.

"The GCC cement industry, enjoying healthy margins and high growth rates, can attract foreign investments worth billions of dollars with the opening of regional economies in the near future," an expert opined. However, the MNCs may prefer to wait for consolidation and development of the industry before investing in the region's highly fragmented facilities.

At present, foreign ownership in local firms is limited to minority stakes purchased through the few exchange markets in the region. "Cement sector globally witnessed significant changes in the recent past and the Middle East is no exception especially when it is opening up in line with international trends," they said.

The Egyptian industry sets an example for a possible path in the GCC cement industry development. International players like CEMEX, Holderbank and Cimpore increased their stakes in the market with the deregulation of the cement sector in that country, they added.

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